@BRRABill have you actually migrated any mail from your first service to office 365

Yes, migrated over fine.

I think at one point someone here on ML said I would have an issue fully moving over. I don't perceive one, but just wanted to be sure I wasn't missing anything.

I am assuming I can slowly migrate people over as I have done myself, and then once we are all on O365, just point our MX record there.

We migrated everybody as we wanted. We had to create 2 bridges from our Exchange server, one for each direction. Then we had to make the O365 server the master exchange server before we could migrate. Once done with all of the migrations, we shutdown the on premise exchange server and haven't turned it back on.

As far as legal stuff, I'm not understanding. Do you mean litigation hold?

As you note you can move slowly from local to Office 365. Just make sure that the attributes don't change internally otherwise any communications from internal to the users in office 365 will be having problems. Enterprise plans as noted by Jared are the ones with archiving and legalhold. you can also make the domain.com as the default login for the users, they still will get emails on the on.microsoft.com email address.

Is there any downside to setting things up using that onmicrosoft account? I know they are in theory the same, also just confirming this. Like if I were to set up (in the migration phase) my Outlook profile using the onmicrosoft account, will it keep just working fine after the migration is done?

I've had some issues with autodiscover, and trying to figure out the best way moving forward.